Warning of worldwide economic catastrophe

Press, 6 September 1982, Page 14

Warning of worldwide economic catastrophe

PA London A-former Chancellor of the Exchequer, Mr,- Healey, warns that next week’s meeting of the International Monetary Fund might be the last chance to save the world from a catastrophe even greater than the slump of the 19305.

Many Third World countries faced the prospect of economic collapse, political anarchy and mass starvation with risk of major default triggering a chain reaction growing every day. , “Yet the major Western countries still think the problem will go away if they ignore it. .When the New Zealand Prime Minister (Mr Muldoon) led a Commonwealth demand for action last week, the British Chancellor turned him down flat,” Mr Healey said. He said the I.M.F. should double its resources at least so that it could take the strain , off the private banks. Mr Healey, deputy-leader of the Labour Party and

shadow foreign secretary,. told the Italian Chamber of Commerce at London’s Cafe Royal that this was simply one measure needed to avert an immediate catastrophe. "For more than three years, Western governments nave turned a blind eye to the consequences of their deflationary policies for a banking system which is dangerously overstretched, by financing the deficits caused by the oil crisis,” he said. “The recession they deliberately created is now. a prolonged slump. Unemployment is rising remorselessly all over the world, even in countries hitherto immune, such as Austria and Japan. "Bankruptcies have already broken all records in America and (Britain.’ Within ' two years an Organisation of Petroleum Exporting Countries surplus of $95,D00M is turning into a deficit of S4I,DOOM. “Commodity prices are the lowest for 30 years. Growth

in many developing countries is falling behind their increase in population.” Mr Healey said the human tragedy and political danger of these self-inflicted wounds was obvious, but all this could be compounded in coming months by a collapse of the Western banking system, unless the I.M.F. acts next week. "The slump has made it impossible not only for companies but for whole countries even to service their existing debts, still less to raise the new money they need to keep afloat. “Mexico, for example, owes SUSBO,OOOM and would need to borrow another SUSIOOOM every day short term to pay the interest. "The crisis affects Communist and capitalist alike — Poland and Argentina are now in the same boat.” With bad debts mounting and the ratio of their equity to loans plummeting, the banks were lending less on stricter terms. Action was desperately needed. The Bank for International Settlements should organise big-scale intervention to control’the “mad swing" in exchange rates. “All this is needed simply to avert an immediate crisis,” ’Mr Healey said. “Such international action will be only a palliative unless the Western governments. themselves now give priority to growth.” Without growth in the industrial countries, the Third World was condemned to beggary and its creditors would have to go on whistling for their money, he said. •!. ..